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Baroness Hayman: My Lords, I am most grateful to the noble Lord, Lord Walton, and others who have welcomed what I intended to be helpful amendments in striking the right balance. I reassure the noble Lord, Lord Lyell, that what we are doing will enable a new voluntary arrangement to be created. The current arrangement is coming to an end and we are in negotiations to create a new one which will allow for flexibility between profits and prices and will enable us to strike a balance between fairness to the NHS and to the companies in terms of profit. The advantages of such flexibility to a voluntary scheme are great and we shall try to safeguard them. I have always made it clear that the Government's intention is to do their best to negotiate a successful voluntary scheme and to abide by it.

Perhaps I may reply briefly to the points made by the noble Earl, Lord Howe. I hope that he is reassured that we have put on the face of the Bill the responsibility to

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take into account reasonable profits in respect of schemes. I hope that he will reflect on whether it is sensible to set up an appeals mechanism against a conclusion reached through a proper process, which I described, and that a voluntary agreement which needs "two to tango" has not come to an end.

I fundamentally disagree with the noble Baroness, Lady Sharp, in her analysis of what we are doing by the statutory provisions which could be called into effect with the voluntary agreement. I understood her desire that we should not have a hybrid scheme, which she expressed in Committee. The amendments we have brought forward more clearly separate out the voluntary agreement from the statutory agreement, but I cannot believe that she would not share my concern that the voluntary agreement, as it existed, was not as effective in delivering as any of us would have wished. I believe that companies which were party to it--and I refer to the minority--could choose not to supply the information and could increase prices without notifying the department. There is no mechanism whatever to fall back on. I do not believe that that was a satisfactory arrangement. The industry has understood it to be unsatisfactory, which is why it has accepted the need for some statutory back up. We are not therefore diluting the voluntary nature; we are making it stronger so that those who complied with it because they believed that it was the right thing to do would not see other people getting away scot-free with non-compliance. I disagree with the noble Baroness's analysis, but the House has been most generous in its response to our proposals and I am grateful.

On Question, amendment agreed to.

Baroness Hayman moved Amendment No. 55:

Page 21, leave out lines 9 to 12 and insert ("and sections 27 and 28, a voluntary scheme is to be treated as applying to a manufacturer or supplier to whom it relates if--
(a) he has consented to the scheme being so treated (and has not withdrawn that consent), and
(b) no notice is in force in his case under subsection (2C).
(2A) For the purposes of this section").

On Question, amendment agreed to.

[Amendment No. 56A not moved.]

Baroness Hayman moved Amendment No. 56:

Page 21, line 15, at end insert--
("(2B) If, in the opinion of the Secretary of State, any acts or omissions of any manufacturer or supplier to whom a voluntary scheme applies (a "scheme member") have shown that, in the scheme member's case, the scheme is ineffective for either of the purposes mentioned in subsection (1), the Secretary of State may give written notice of that fact to the scheme member stating his reasons.
(2C) If, after the Secretary of State has given the scheme member an opportunity to make representations about the acts or omissions in question, he continues to be of that opinion, he may by a further written notice given to the scheme member (and stating his reasons) determine that the scheme should cease to apply in the scheme member's case.

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(2D) Consent under subsection (2)(a) must be given, or withdrawn, in the manner required by the Secretary of State.").

On Question, amendment agreed to.

Earl Howe moved Amendment No. 57:

Page 21, line 23, at end insert (", for the purpose of giving effect to a voluntary scheme").

The noble Earl said: My Lords, the point at issue is that Clause 26(4) does not, as currently drafted, make it clear that the powers it contains are to be exercised within the parameters of the voluntary scheme. That may well be implied from the structure of the clause taken as a whole, but the point is an important one on which there should be no ambiguity. When companies sign up to the voluntary scheme, the control powers in Clause 26(4) should be related to the provisions of the voluntary scheme itself. I beg to move.

Baroness Hayman: My Lords, I hope that I can reassure the noble Earl. All the powers conferred by Clause 26 are exercisable only where there is a voluntary scheme in existence between the Secretary of State and the industry body. The voluntary scheme is described in Clause 26 as having the purpose of limiting the prices charged for medicines supplied to the NHS or of limiting the profits made from such sales.

Subsection (4) allows the Secretary of State to prohibit any increase in prices without his approval and also to recover any sums charged in contravention of that prohibition. But the prohibition can only relate to medicines covered by the scheme. It is clearly not the case that the prohibition would operate outside the scope of the provisions of the voluntary scheme. It is Clause 27 which deals with the control of prices in the absence of the voluntary scheme, or in the case of suppliers and manufacturers not abiding by the terms of the voluntary scheme.

While I accept that this amendment is intended to add clarity to the purpose of Clause 26, I hope that the noble Earl will feel that it is already clear as to what Clause 26 provides and the way in which it will operate.

6 p.m.

Earl Howe: My Lords, that is a very helpful reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 27 [Power to control prices]:

Baroness Hayman moved Amendment No. 58:

Page 21, line 40, at end insert--
("( ) The powers conferred by this section are not exercisable at any time in relation to a manufacturer or supplier to whom at that time a voluntary scheme applies.").

On Question, amendment agreed to.

Clause 28 [Statutory schemes]:

Baroness Hayman moved Amendment No. 59:

Page 22, line 31, at end insert--
("( ) A statutory scheme may not apply to a manufacturer or supplier to whom a voluntary scheme applies.").

On Question, amendment agreed to.

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Earl Howe moved Amendment No. 60:

Leave out Clause 28.

The noble Earl said: My Lords, notwithstanding the very helpful amendments being moved by the Government today which place the Bill's provisions onto a much sounder footing, I hope that the House will allow me to make one or two observations on the reserve powers contained in Clause 28.

What we still have in the Bill, admittedly as a reserve power but nevertheless available for use by the Secretary of State with little further formality, is a power to create an entirely new operating climate for the pharmaceutical industry in the UK. The considerable worry shared by those of us on these Benches is that to interfere with the voluntary arrangements of the PPRS, which have, by and large, worked supremely well for over 40 years to the shared benefit of government, industry and the NHS, is a course upon which we should embark at our peril.

The introduction of a statutory scheme, were that to occur, with all the cards stacked in the Secretary of State's favour, would represent a huge risk to the continued stability of the pharmaceutical industry. The ethos which has underpinned the PPRS from its inception has been that, by mutual agreement, there really can be a fair deal for the NHS and patients combined with a flourishing R&D base in the UK. The clear message here would be that that ethos has been consigned to history. For a statutory scheme allowing prices to be controlled by Whitehall would, at a stroke, skew the present delicate balance of advantages away from the industry.

But who then would be the beneficiaries? I suggest that it would not be the NHS. Compulsory price fixing would act as an instant disincentive to pharmaceutical companies to continue operating in the UK. Why should they invest in research if they cannot earn a fair return on capital here? If the research base migrates overseas, it will no longer be the British patient who first sees the benefits of new treatments emerging onto the market.

I fully acknowledge that the government amendments have gone a long way to allay the fears of the industry. The Minister will say that there is no present intention to create a statutory scheme. All right, but I maintain that even the existence of a reserve power such as we find in Clause 28 will create sufficient uncertainty among pharmaceutical companies, particularly foreign-owned pharmaceutical companies, to undermine long-term business confidence. The threat of a compulsory scheme, however veiled, combined with that other hurdle created by NICE of the requirement on a manufacturer to demonstrate the cost-effectiveness of a drug, will create the perception of an unfriendly business environment in this country. One does not need much more than that perception to cause businesses to start packing up their tents and looking elsewhere.

The pharmaceutical industry is global. The UK industry represents 3 per cent. of the world market. The competitiveness of the UK as a home for pharmaceutical activity is already declining. The only things which make the UK attractive to foreign investors are the

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strength of our science base and the ability to operate in a more benign and stable business environment than some others overseas.

Peter Mandelson, in an evocative phrase, spoke of wanting to create a knowledge-driven economy. The pharmaceutical industry is surely the largest knowledge-driven sector that we have. It is the second largest earner of foreign currency after the oil industry and yet here suddenly we seem to have a Government acting schizophrenically: they sing the praises of the knowledge-driven economy and simultaneously take powers to clamp down on it.

The Minister will have gathered that I am uneasy about those provisions remaining in the Bill. I await her reply with interest. In the meantime, I beg to move.

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